1999-3720(GST)I
BETWEEN:
CARIE D. WILLIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on November 23, 2000 at Halifax, Nova Scotia, by
the Honourable Judge Diane Campbell
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Marcel Prévost and
Ifeanyichukwu Nwachukwu
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated May 16, 1995 and bears number 01CB0201027, is allowed, without costs, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 5th day of December 2000.
|
"Diane Campbell" |
J.T.C.C.
Date: 20001205
Docket: 1999-3720(GST)I
BETWEEN:
CARIE D. WILLIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell, J.
[1] By Notice of Assessment dated May 16, 1995, the Appellant was assessed for Goods and Services Tax (GST) and for penalties and interest for the period January 1, 1991 to December 31, 1994, by making adjustments to amounts otherwise filed as follows:
Tax adjustment, increase in GST collectible $36,243.83
Penalties $ 5,459.91
Other Penalties $ 2,194.65
Interest $ 5,215.57
[2] The category "other penalties" originally calculated the penalty under section 285 of the Act at $2,194.65. The reply noted a calculation error and identified the proper calculation as $2,215.91.
[3] The Appellant operated a sole proprietorship known as United Plumbing & Heating which supplied plumbing contracting services in the Province of Nova Scotia. It ceased doing business in 1995. During the period in question, the Appellant was registered as a GST registrant. He was required to file 16 quarterly GST returns for this period but filed only five, one each for the four quarters in 1991 and one for the quarter ending September 30, 1993.
[4] The Minister's reply contained an attached Schedule "A" detailing the amounts for goods and services tax, income tax credits and net tax reported by the Appellant and the adjustments made by the Minister to both the five quarters for which returns were filed and the remaining quarters for which they were not filed.
[5] The Appellant commenced the business in 1991 and hired an employee to complete his books. He found this too expensive and he let her go in 1992. During 1991, all four GST returns were filed. He then entrusted his brother, Lawrence Willis, to keep the business records. His brother did not keep proper records and except for the one GST return filed in 1993, the business filed no further returns. The Appellant testified that he knew he had to keep receipts and proper records and that he was responsible for filing returns. He had people hired to do this and he stated he just "didn't get on top of it".
[6] When the audit request came in 1995, an official of Revenue Canada attended at the Appellant's residence and the Appellant's wife gave them a box containing receipts and deposit books of the proprietorship. Other than this box, the Appellant kept track of business items on his computer. Except for this one contact, Revenue Canada officials did not contact the Appellant again.
[7] With the lack of adequate financial records, the Minister calculated GST collectible in 1991 by assuming that the gross business revenue reported on the Appellant's 1991 T1 adjustment tax return consisted of consideration for taxable supplies and prorated this business revenue to quarterly periods. GST was then calculated on each prorated amount.
[8] For the years 1992, 1993 and 1994, the deposits recorded in the Appellant's business account were used to determine the consideration for taxable supplies and GST collectible.
[9] These methods of calculation for the period of 1991 and the period 1992 to 1994, produced a figure of additional GST collectible of $36,243.83. The Appellant gave evidence that he had himself reconciled his bank deposit books and his T1 form and agreed with the figure for GST collectible. The issue of whether the GST of $36,243.83 was correctly calculated and assessed was not before me for decision.
[10] The remaining two issues to be decided are:
(1) whether the Appellant can claim additional input tax credits and
(2) whether assessed penalties in the amount of $5,459.91 pursuant to subsection 280(1) and other penalties in the amount of $2,215.91 pursuant to section 285 together with interest pursuant to section 280 of the Act are properly calculated.
[11] Paragraph 10(k) of the assumptions contained in the reply stated that "the Appellant did not have documentation to allow input tax credits to be claimed in excess of those already claimed by him on returns filed". The Appellant according to the Schedule "A" attached to the reply reported input tax credits, in the five GST returns he did file, totalling $6,092.35. He filed as an exhibit a summary of input tax credits with detailed summaries for each quarter in respect to each of the years under appeal. The total receipts for the years 1991 to 1994 totalled $3,256.15. There were discrepancies however between these summary figures in the exhibit and the figures supplied in Schedule "A" of the reply where the input tax credits were reported by the Appellant as $6,092.35. That means the Appellant reported receipts for input tax credits for five of the relevant 16 quarters in a total amount of $6,092.35 but then provided a summary in his exhibit for the entire 16 quarters for input tax credits in the amount of $3,256.15. The Appellant agreed that the figures for 1991 where he filed four returns should have been the same and he could not account for why they were not the same. The Appellant did have invoices to support each of the amounts claimed in the summary sheets tendered as an exhibit.
[12] In addition to filing these summary sheets, the Appellant also filed a letter from his major supplier, Thornes, which confirmed that GST on 1993 and 1994 purchases for United Plumbing & Heating totalled $4,699.59. These were not included in the Exhibit A-1 summary sheets as this correspondence was only received by the Appellant on November 20, 2000.
[13] I accept that the Appellant did not keep adequate financial records but I do not accept as reasonable that the Minister expects GST to be payable and yet not allow input tax credits. This was a plumbing contracting business and would by necessity be making purchases of plumbing fixtures. They could not possibly operate without doing so. I am therefore going to allow the Appellant to claim the sum of $4,699.59 as an input tax credit in respect to business purchases from his supplier, Thornes. His summary sheets, which total $3,256.15 for the years 1991 to 1994, were, according to the Appellant, for GST on other purchases for his business. I find that the fair and reasonable approach is to allow one half of $3,256.15 as input tax credits i.e. $1,628.08. These summary sheets cover purchases such as gas, Canadian Tire, crane supply, Atlantic Air Conditioning, etc. Without specific evidence by the Appellant in respect to the receipts, I cannot find all amounts to be input tax credits for the business. His business could not operate however without purchases such as those outlined in his summary. Section 286 of the Act requires proper record keeping to substantiate a rebate or refund claim. I find the information in the two exhibits together with the Appellant's evidence sufficiently establishes the input tax credit claim to the extent I have permitted.
[14] The Appellant was a credible witness who testified that he has paid considerable amounts on his outstanding account since 1998 and now just wanted to have what he felt were reasonable adjustments made to his account. He readily acknowledged that he had verified the GST amount of $36,243.83 calculated by the Minister and agreed to this figure during the hearing. He had full intention he stated to pay any balance owing. By his own admission however he did not keep proper records and he failed to file returns in a timely fashion. His only explanation was that he relied on his brother after 1991. His brother was obviously incompetent in bookkeeping and did not complete the work. It was however the Appellant's business and he is the individual who is ultimately responsible for the financial records, calculations and appropriate remittances. The Minister assessed penalties under sections 280 and 285. The facts establish that the Appellant did not exercise the requisite standard of care in calculating and remitting GST. In fact after 1991, he made little attempt to comply with the necessary filings and remittances even though he was aware that it was his responsibility. The due diligence test established in Pillar Oilfield Projects Ltd. v. Canada [1993] G.S.T.C. 49, has not been met. The penalty of $5,459.91 assessed under section 280 is confirmed.
[15] Because of the difficulties the Appellant had with his bookkeeper, and the family problems which have resulted from the Appellant's financial burden, including the near loss of his home, this is a case where the Minister would be justified in waiving the interest and penalties under section 281.1 of the Act. In making this recommendation, I am aware that it is entirely within the Minister's discretion to waive or cancel. One must however be cognizant of the fact that interest charges of $5,215.57 are the tip of the iceberg as the charge is an ongoing one. In this case the Appellant has incurred an additional six years of interest charges since 1994 and will continue to do so unless some relief is provided. He stated that his wife and children have left him over the financial problems this has created. Except for his family's intervention he would have lost his home. His wages have been garnished. The garnishee amount was reduced when it became apparent his budget could not support the initial amount being deducted. He is now making an effort to turn his financial situation around. I strongly recommend that the Minister give him some support in this effort if not in respect to interest for the period under appeal, then for interest charges since 1994 and those to be charged in the future.
[16] The final issue which I must deal with is the penalty of $2,215.91 imposed under section 285 of the Act. The wording of section 285 is almost identical to that contained in subsection 163(2) of the Income Tax Act. Section 285 requires that an omission or false statement in a return be made knowingly or in circumstances amounting to gross negligence. However the Income Tax Act contains a provision (subsection 163(3)) that clearly places the burden of proof on the Crown. There is no corresponding provision in the Goods and Services Tax Act. The omission of such a provision has been addressed in a number of cases by this Court including Alex Excavating Inc. v. The Queen [1995] G.S.T.C. 57 and 897366 Ontario Ltd. v. The Queen [2000] G.S.T.C. 13. In the absence of such a provision in this Act, these cases place the onus on the Crown to establish the necessary facts which would substantiate imposition of a penalty under section 285. As stated by Bowman, A.C.J.T.C. in 897366 Ontario Ltd. v. The Queen at p. 135:
"It appears axiomatic that where a government imposes a penalty upon a subject for conduct in which a necessary ingredient is mens rea of intent or recklessness, it is incumbent upon that government to justify its action."
[17] To arrive at any other conclusion would be to ignore the basic rule of consistency in judgments and would undoubtedly lead to unfair and unreasonable conclusions. The Crown produced no evidence at the hearing to establish the imposition of a penalty. No assessor was called to support a finding of wilful conduct. The Appellant was negligent in not keeping proper records and making remittances but the Appellant's conduct does not amount to gross negligence. The penalty under section 285 is therefore deleted.
[18] The appeal is allowed and the assessment referred back to the Minister for reassessment and reconsideration to allow input tax credits of $4,699.59 and $1,628.08 to be applied against the GST liability, which was agreed upon between the parties, in the amount of $36,243.83. The penalty of $2,215.91 imposed under section 285 is deleted. The penalty and interest imposed under section 280 are maintained but should be re-calculated to give effect to the further input tax credits allowed.
Signed at Ottawa, Canada, this 5th day of December 2000.
|
"Diane Campbell" |
J.T.C.C.
COURT FILE NO.: 1999-3720(GST)I
STYLE OF CAUSE: Carie D. Willis and
Her Majesty the Queen
PLACE OF HEARING: Halifax, Nova Scotia
DATE OF HEARING: November 23, 2000
REASONS FOR JUDGMENT BY: The Honourable Judge Diane Campbell
DATE OF JUDGMENT: December 5, 2000
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Marcel Prévost and
Ifeanyichukwu Nwachukwu
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada